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Wednesday, June 7, 2017

When Trotsky (Temporarily) Embraced Prices and Markets

The year was 1932. Leon Trotsky had been already been tossed out of the Communist Party and exiled from Stalin's Soviet Union. Writing from a distance, he found himself performing a balancing act: on one side, supporting the broad idea of the Revolution and the ultimate victory of socialism; on the other side, criticizing the first five-year economic plan as poorly designed and replete with failures. In his October 1932 essay, "The Soviet Economy in Danger," Trotsky finds himself arguing that Soviet bureaucrats were far too confident about economic central planning, and instead needed to rely more on prices and supply and demand.

Here are some snippets from Trotsky, which include a number of phrases and sentences that could have been written by a fierce critic of socialism like Friedrich Hayek. Trotsky's concerns include: the large costs of mistakes in centralized decision-making, problems in which quality of output is sacrificed in the drive for greater quantity, lack of coordination across production chains in the economy, how bureaucrats lack a "universal mind" and thus need to rely on supply and demand and "commercial relations." Of course, for Trotsky, all of this just proves that socialism is working.

"Even though the first five-year plan took into consideration all possible aspects, by the very nature of things it could not be anything but a first and rough hypothesis, destined beforehand to fundamental reconstruction in the process of the work. It is impossible to create a priori a complete system of economic harmony. The planning hypothesis could not but include old disproportions and the inevitability of the development of new ones. Centralized management implies not only great advantages but also the danger of centralizing mistakes, that is, of elevating them to an excessively high degree. ...

"The administrative hue and cry for quantity leads to a frightful lowering of quality; low quality undermines at the next stage the struggle for quantity; the ultimate cost of economically irrational “successes” surpasses as a rule many times the value of these same successes. Every advanced worker is acquainted with this dialectic, not through the books of the Communist academy (alas! more inferior goods), but in practice, through experience in their own mines, factories, railroads, fuel stations, etc. ... If we were to introduce a corrective coefficient for quality into the official data, then the indices of the fulfilment of the plan would immediately suffer substantial drops. ...

"The problem of the proportionality of the elements of production and the branches of the economy constitutes the very heart of socialist economy. The tortuous roads that lead to the solution of this problem are not charted on any map. To discover them, or more correctly to lay them, is the work of a lengthy and arduous future. All of industry groans from the lack of spare parts. Weavers’ looms remain inactive because a bolt is not to be had. “The assortment of articles produced,” writes EZ, “in the line of commodities of widespread consumption is haphazard and does not correspond to ... the demand.” ...

"If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. In its projections it is necessarily obliged, in actual performance, to depend upon the proportions (and with equal justice one may say the disproportions) it has inherited from capitalist Russia, upon the data of the economic structure of contemporary capitalist nations, and finally upon the experience of successes and mistakes of the Soviet economy itself. But even the most correct combination of all these elements will allow only a most imperfect framework of a plan, not more.

"The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realized through the market. The regulation of the market itself must depend upon the tendencies that are brought out through its mechanism. The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation. ...

"Within the scope of this brief pamphlet I have deemed it necessary to present in all their acuteness the contradictions of the Soviet economy, the incompleteness and the precariousness of many of its conquests, the gross errors of the leadership, and the dangers that stand in the path of socialism. ... One who accepts the proletarian revolution only when it is accompanied by all conveniences and lifelong guarantees cannot continue on the road with us. We accept the workers’ state as it is and we assert, “This is our state.” Despite its heritage of backwardness, despite starvation and sluggishness, despite the bureaucratic mistakes and even abominations, the workers of the entire world must defend tooth and nail their future socialist fatherland which this state represents. ..."